The Power of Perspectives

The Canadian Bar Association

Justin Ling

NAFTA and good faith breaches of Canadian law

November 16 2016 16 November 2016

NAFTA is racking up enemies, lately. An ongoing fight surrounding the rejection of coastal quarry and marine terminal in Nova Scotia stands to either vindicate those naysayers, or serve as a sorely needed win for the defenders of Donald Trump’s least favourite trade deal.

The trade fight was sparked by a 2007 judgment from a Canada-Nova Scotia environmental assessment review panel that denied Bilcon, a Delaware-registered construction company that was looking to expand its quarry mine near Digby, by installing a new marine terminal to ship the basalt to a processing plant in the United States.

The panel, according to a backgrounder from the federal government, concluded the terminal “should not be permitted to proceed because it would have a significant and adverse environmental effect on ‘community core values.’” Ottawa drew the same conclusion under the Canadian Environmental Assessment Act.

Instead of appealing the decision domestically, in 2008 Bilcon filed a NAFTA challenge under Chapter 11, which protects the interests of foreign investors.

Barry Appleton, who runs a border-crossing firm and represented Bilcon at the NAFTA tribunal, is arguing that his client had an unfair shake.

He says the joint review panel was intended for larer, complex projects, not small-scale operations like Bilcon’s. What’s more, he argued, the panel “rejected the quarry expansion without providing any advanced notification or opportunity for the proponent to address any environmental impacts; all on the basis of rules not contained in Canadian law,” Appleton wrote in a brief on the case.

Appleton and the company say the province and federal government had “perverted” the environmental review process, with little regard for the due process that would normally have been extended to a Canadian company.

After dragging through the courts for years, a NAFTA tribunal finally sided with Appleton and Bilcon in 2015.

“The ultimate decision makers in the governments of federal Canada and Nova Scotia were not provided with all the information that could have provided a proper foundation from which to arrive at their own final conclusions,” it concluded. “In the result, the Investors were encouraged to engage in a regulatory approval process costing millions of dollars and other corporate resources that was in retrospect unwinnable from the outset.”

The tribunal further held that the joint review panel effectively forbade all projects of this type, making it a kind of “zoning” decision.

Less clear was whether the project rejection came about simply because the company was American.

“The majority’s finding was based on the fact that the standard applied by the [joint environmental review panel] had not been applied in other environmental assessments and the government had not shown any legitimate non-discriminatory reason for such difference in treatment,” reads the Government of Canada backgrounder.

In a dissenting decision, one panelist — Dalhousie University law professor Donald McRae — found that the joint review process’ “assessment concerned the historical use of the area by Aboriginal peoples, fishing, eco-tourism, quality of life, air and water quality, a sense of community history and heritage, a belief in a certain community character and common attitudes, and were reflected, too, in views about the health of the community.”

McRae went on to say that even if the assessment was incorrect, a simple failure of Canadian law isn’t sufficient to bring the NAFTA foreign investor provisions into place. To do so, the legal ruling would need to be “arbitrary.”

The majority of the panel stresses that its decision isn’t meant to cut down or limit Canada’s sovereignty to regulate its environment. But, McRae notes, that is the fallout from the decision. “The decision of the majority will be seen as a remarkable step backwards in environmental protection,” McRae writes.

The NAFTA tribunal is still considering awards and damages in the case — Bilcon wants $CDN 101 million— while an application in the Federal Court has already been filed to set the decision aside.

Scott McAnsh is lead counsel on the case for EcoJustice, granted leave to intervene at the Federal Court’s judicial review.

“It is hard to say with any certainty what the impacts would be of a worst case outcome,” McAnsh says, echoing the opinion of the lone dissenting panel member.

And should the tribunal award significant damages, he worries that NAFTA’s scope may be expanded as a result. Finding Nova Scotia and the federal government at fault would essentially penalize “good faith breaches of Canadian law,” he says; not actions that are evidently unfair or discriminatory to foreign investors.

“That is not what NAFTA was designed for and if it is not reversed it effectively creates a parallel court system with cash damages that are not available in Canadian courts,” McAnsh says.

But McAnsh has reason for optimism.

“The Bilcon decision greatly increases the consequences of an error of a review panel. That will obviously make future panels more cautious in their approach, which will likely mean a more narrow interpretation of their power,” he says.

“If things go well it means that the scope of NAFTA has been properly limited. Canada is bound by NAFTA, but that should only mean not acting unfairly or in an arbitrary manner.”

Photo Credits: whiskeyandtears

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